The days of diminishing returns with government-backed bonds or waiting in line at the bank to confirm a transaction can become something of the past with Decentralised Finance (DeFi).
From earning 1% in Treasury bills to becoming a staker in liquidity pools, farming Sushi, or finding the next Uniswap gem, find out why Decentralised Finance is reinventing financial opportunities for individuals and companies worldwide.
What is Decentralised Finance?
Decentralised Finance englobes applications to manage and allocate your digital assets without the control of a central organisation. With the emergence of DeFi, you are back in control of your financial life.
The introduction of smart contracts and the development of Ethereum led to the emergence of many decentralised, global, and permissionless financial applications that work natively within the digital assets ecosystem. DeFi’s flexibility, investment potential, and openness led to an abundance of financial products for crypto holders to diversify their investments while transitioning their money management into a decentralised environment.
Decentralised technologies and their underlying advantages offer other sectors an opportunity for differentiation, attracting users from archaic alternatives. As a result, decentralised use cases expanded to many more sectors beyond financial applications (e.g., Decentralised Autonomous Organisations, gaming, insurance) amid a new wave of enthusiasm around cryptocurrencies.
But, how is this different from traditional financial systems and their many investment products and applications? Let’s take a step back.
Money Management until DeFi
Until now, most money management followed the intermediary of a bank and traditional systems. For example, when you deposit money in your bank, you’re dealing with a central organisation with traditional procedures and control over your assets. Once you deposit, you can manage your money, make payments, and invest, but with the intermediation of the bank’s system.
Fintech applications came to simplify the everyday management of money and even access to traditional investment options (e.g., stock purchases), but they all rely on various central entities.
Whether you make a transfer, decide to withdraw a significant portion of your account funds, or want to invest in a stock, institutions such as banks or brokers are in control of the back-end processes, approval, and order execution.
Working in an environment with intermediaries, you engage in abnormal fees, extensive procedures, and lack flexibility. DeFi eliminates all the bottlenecks within financial processes whilst offering better investment opportunities.
How does DeFi enter the picture?
DeFi cuts through the middleman to let you transact with other parties simply, creating multiple investment options to allocate your digital assets. Decentralisation technologies assure that you control your assets, as with centralised parties, you face counterparty risk and possible exploits/mismanagement out of your control.
With DeFi, the entirety of services from the traditional financial system came to digital assets while offering more flexibility, better returns, and more autonomy. DeFi offers more transparency as all on-chain data is publicly available to check, while its censorship resistance nature gives users a free and long-term alternative for digital investments.
For creators, DeFi’s openness allows to quickly launch protocols, bolstering the innovation and options in the market. On top of that ability, DeFi’s interoperability grants protocols to communicate between themselves and make the user experience more complete and scalable.
What can DeFi offer?
At its essence, Defi enables transactions of digital assets between parties with high speed and scale. The emergence and adoption of major Decentralised Exchanges (DEXes) in the last two years show the need to trade and invest in digital assets without the intervention of a central entity controlling funds, limiting operations, and diminishing returns opportunities. Within the DeFi ecosystem, custom wallets are able to securely store your funds and conduct transactions across DEXes while the range of investment options increases.
However, DeFi does not stop with DEXes. From lending protocols, yield farming to Automated Market Makers (AMMs), DeFi is a powerhouse of passive income opportunities based on digital assets. With lending protocols, you can secure or borrow loans with crypto as collateral or earn interest from your crypto loans. DeFi also bolsters innovations with no equivalent counterpart in traditional finance as flash loans, enabling large-scale profit opportunities in a single operation.
With the emergence of yield aggregators and staking platforms, you can lock up your funds into distributed pools and generate a consistent allocation rate. New alternatives enter the market daily with platforms expanding DeFi’s secondary markets (e.g., derivatives), prediction markets, and expanding into other sectors (e.g., insurance, gaming).
The integration of TradFi and DeFi
Decentralised projects continue to spring out with different use cases across sectors amid adoption reaching record levels. On one side, dApps will continue to improve and offer better user experiences in an entirely digital ecosystem while expanding investment opportunities. However, a key bridge to cross with DeFi is its integration with the Traditional Finance (TradFi) space.
At first sight, it can seem contradictory for new technology to integrate with its incumbents. However, DeFi protocols have to offer the best of traditional finance in a digitally native world. For example, there are currently lacks in FIAT (e.g., USD /EUR) gateways for DeFi while issues around security and usability still arise.
At CoinBurp, seamless integration of FIAT deposits is extremely important, along with Centralised Finance’s security in a decentralised world, and an easy-to-use interface to attract enthusiasts from all technological levels. The future development and maturity of the DeFi space will bring out the attractive aspects of TradFi while maintaining the freedom and flexibility of its decentralised ethos.
Start your decentralised journey with the Coinburp DeFi and NFT wallet, allowing you to send and store Ethereum-based tokens from your favorite marketplaces (e.g. Avastars, Sandbox.game) with an easy interface, future FIAT integration, and institutional-like security.
Important Information
Cryptocurrencies are generally not regulated and investors do not have access to recourse or compensation schemes such as, for example, in the UK, the Financial Ombudsman Service or the Financial Services Compensation Scheme. Investing in cryptocurrencies can be high risk and investors should carefully evaluate their appetite for risk and their understanding of trading cryptocurrencies prior to entering into a transaction.
